Sugar and Cotton ETF Trade Setups (SGG, BAL)

The sugar and cotton markets aren't followed by most retail investors, so opportunities in these commodities (and associated ETFs) tend to slip under the radar. Commodity ETFs like these can also provide diversification benefits. Sugar and cotton ETNs are currently providing trading opportunities within overall uptrends.

The iPath Bloomberg Sugar ETN (SGG) is in a strong uptrend extending back to late 2015 when it bottomed at $24.16. In September, it reached as high as $53.69 before pulling back to the $44 to $42 region in November. $44 to $42 is a compelling buying area as this region is support from June through August. The expectation is the uptrend will continue, but if it doesn't the risk is minimal with a stop loss placed below $41.50. If another move higher does occur, profits can be taken near $53.50, just below the September high. If the price continues to rally above the September high, the longer-term target is a resistance area from 2014 near $57.

If the price continues to decline below $41.50, long trades can be abandoned as sugar is likely headed for a deeper correction toward $37.50 or below. The ETN averages 55,000 shares in daily volume.

The iPath Bloomberg Cotton ETN (BAL) bottomed at $35.58 in February and rallied as high as $51.79 in August. The price then pulled back to $43.29, also in August. Since then the price is moving in an ascending triangle pattern. Based on the overall uptrend, traders can buy near triangle support at $46 in anticipation of a future rally. A stop loss can be placed just below $45. Another option is to wait for a breakout above $48, which would signal another advance. In this case, the stop loss can be moved up to $46. While cotton has trended well this year, it often experiences extended periods of sideways movements. For this reason, consider taking profits near the $51.79 August high. The height of the triangle ($4.66), added to the breakout point, provides another profit taking opportunity near $52.60.

If the price doesn't breakout above $48, and instead drops below $45, that's a warning sign of a deeper correction, potentially back to $42 to $41. The ETN averages 11,200 shares in daily volume. If taking large positions, keep in mind the low volume which may prevent liquidating the position promptly at the desired price.

The Bottom Line

Sugar and cotton aren't typically followed by retail traders, but they are globally traded commodities that provide trading opportunities just like other stocks or ETFs. These ETNs make sugar and cotton markets accessible to retail traders. Daily volume is somewhat of a concern for traders taking large positions. For retail traders holding less than one thousand shares, for trades that last weeks or months, the lower volume isn't a major concern. Consider purchasing near current support levels, with the expectation that the uptrend will continue. A stop loss order placed below support limits the loss if further upside doesn't materialize.

Disclosure: The author doesn't have positions in the ETNs or commodities mentioned.